Markets & Finance

Betting on Some Current Winners

June 18, 2003

By Numer de Guia The recent market rally has been fueled, in part, by investor optimism that corporate profits will improve in the second half of 2003. The rationale: A rising tide of economic recovery will lift all boats in Corporate America's fleet.

But what about the businesses that have already turned in sterling profit growth -- in the midst of a sluggish economy? That's something the stocks in this week's screen all have in common. They've posted some handsome gains, but unlike many of their counterparts, their advance has been justified by superior profit performance.

Here's how we compiled this week's list: To qualify, a stock must have had at least 20% earnings growth and 20% stock-price appreciation (unannualized) since the market's peak in March, 2000. (Compare that with total unannualized declines of 25.7% in earnings per share and 17.2% in price for the S&P 500 over the same period.) The earnings numbers for the screened companies were based on 12-month trailing basic earnings per share before extraordinary items, as provided by market-data outfit Compustat. We utilized the "least squares method," a statistical tool that computes the average

trendline traced by the data points, in the growth calculations.

And to make sure that the stocks we picked had good potential for future price appreciation, we looked for those issues ranked 4 STARS (accumulate) or 5 STARS (strong buy) by Standard & Poor's analysts. This means that they're expected to continue outperforming the overall market over the next 6 months to 12 months.